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are listed below: 1) Focus on customers: The Kaizen philosophy has only one prime objective of customers’ satisfaction. Kaizen permits no middle ground its either you provide best products and customer satisfaction or not. All the activities should aim at providing customer with whatever he wants and should help the firm long term objective of customers’ satisfaction at the same time building up good relationship. It is a responsibility of each and every person working in a Kaizen company to make sure that the product is up to the mark and it satisfies customers need. 2) Make improvements continuously: There is not a best way to do a thing, there is still a better way. In a Kaizen company, the search for excellence just does not end. We should work on the improvement implemented and see if we can make it even more effective. 3) Acknowledge problems openly: Every company has certain problems related to finance, competition, change in demand etc. Kaizen companies are no exception, but by fostering an appropriately supportive, constructive culture it becomes easier for any team to get its problem in the open. The whole organization works as a team to solve the problem. The problems are openly shared by the management with the employees which avoids rumors. It simply means FIGHT WITH YOUR PROBLEMS DON’T RUN AWAY FROM THEM. 4) Promote openness: There seems to be less functional ring fencing i.e. only the senior managers have private cabins. Otherwise the workplace is generally open and in many companies even the dress code and canteen for everyone is the same. 5) Create work teams: Each individual in a Kaizen company belongs to work team headed by a leader. Working in various overlapping teams draws employees into corporate life and reinforces the mutual understanding. 6) Cross- functional teams: kaizen states that no individual or team has all the required skill and knowledge to complete a task. Cross-functional teams help in getting all the valuable information’s from the view of all the related people. It calls for letting ideas to flow as wide as running on moon.
and changing standards to ensure the problem stays solved. transportation. In a Kaizen company it is also important to give employees adequate training to sharpen their skills and also incentives should be provided. In case where a workers suggestion is implemented he should be given rewards. improved quality.000 Toyota employees submitted over 75. plant. of which 99% were implemented. ii. It’s not unusual for Kaizen to result in 25 to 30 suggestions per employee. For example. waiting times. Kaizen involves every employee in making change–in most cases small. Kaizen reduces waste in areas such as inventory. 7. employee’s skills. This is very important to make sure that the employees have the right attitude and also that they respect their culture and help their co-workers. solving them at their source. On top of these benefits to the company. lower costs. 8) Develop self-discipline: The most important evidence of existence of Kaizen in a company is the level of self-discipline in an employee. product quality. you can expect results such as: i. These continual small improvements add up to major benefits. 9) Inform every employee: Kaizen requires all the staff to be given all the information at the time of their induction and throughout their working tenure. 10) Enable every employee: Enabling employees gives those skills and opportunity to apply the information provided. It focuses on identifying problems at their source. over production. worker motion.000 suggestions. Kaizen improves space utilization. Toyota is well-known as one of the leaders in using Kaizen. In 1999 at one U. and greater customer satisfaction.S. excess quality and in processes. use of capital. production capacity and employee retention. and lower turn-over. faster delivery. Harmony means a complete mixture of the best process and also the best results. .7) Right relationship process: This principle can be explained in one word as harmony. communications. and to have bovver 90% of those implemented. better safety. incremental changes. employees working in Kaizen-based companies generally find work to be easier and more enjoyable–resulting in higher employee moral and job satisfaction. per year. With every employee looking for ways to make improvements. They result in improved productivity.
Bad business ignores the sign of disaster. The word Kaizen refers to small and continuous improvement. safety. The wider meaning is continuous improvement consistently. consistency and so on. Kaizen provides immediate results. competitive cost and reliability. Kaizen focuses on creative investments that continually solve large numbers of small problems. capital projects and major changes will still be needed. our working life. The reality is you can make improvements once if you try. . customer satisfaction. every place leading to self development and hereby neighborhood development. ii. In a management sense this means continual & gradual improvements through evolution rather than revolution. iii. quality refers to meeting specification and requirement. our social life or our home life needs to be constantly improved for the betterment. you can make them more than once if you care. capital intensive improvements. KAIZEN business constantly reviews and monitors to preclude disaster. work styles or other intangible benefits derived from kaizen. To add to all this we would further like to add the following: Kaizen closely associated with quality. quantitative benefits might include: i. There are several benefits to using kaizen. These benefits can be categorized as either quantitative or qualitative. every step. Fewer people required. Money saved. and Kaizen will also improve the capital projects process.iii. Time saved (contributing to money saved). iv. Based on the kaizen or kaizen event. Quantitative benefits These are measurable results used to show management specific improvements or prove that time. Instead of focusing on large. but the real power of Kaizen is in the on-going process of continually making small improvements that improve processes and reduce waste. Good business spots the sign of disaster and deals with them. Shorter distance traveled. too many managers focus solely on monetary benefits without considering people’s feelings. Unfortunately. Large. Kaizen signifies small improvement made in the status quo as a result of large investment. The kaizen philosophy is based on our life. every time. effort and money were well spent.
If you listen to participants at a successful lean event. Reduced lead time or cycle time. The following kaizen event benefits are commonly overlooked by management: i. Fewer steps in a process. we might be able to quantify a 5S’s event’s outcome in term of shorter distance traveled within a workplace. Time: When is there ever really enough time to make improvements? One of the biggest reasons I recommend using a kaizen event as a method of improvement is that the time of the event is scheduled. you are being proactive and setting aside time to make improvements. vii.” These are important and lasting human results that are just as important as the measurable ones. at the end of a kaizen event. fewer safety incidents and reduced supplies or inventories. But few companies actually take the time to understand the human side of lean. Qualitative benefits These types of “feeling” results that show the human side of lean might be just as important as the quantitative results. Teamwork: Invariably. This measurement step encourages management to become owners of the results. When people need help from other departments during a future event or activity and the people have already worked on a kaizen . when individuals might have worked alone. vi. non-value added contents.” or “Look how much more room we have.” or “These changes will help reduce my stress level. If you wait until you have time to get a team together to make improvements. There are three specific benefits to performing kaizen events rather than their improvement methods. these types of benefits are more difficult to measure. you’ll wait forever. Reduced inventory. someone mentions how much he or she enjoyed working as a team. viii. One of the tricks of the trade is to get an accountant on board to measure the results of the activities before closing a kaizen costing and eventually forward the metrics to management. This comment signals a shift in attitude from the beginning of the event. Value vs. By scheduling a kaizen event.v. For example. you’ll hear things like: “Now I can find things around here. Improved first pass yield. ix. Predictably. ii.
Also. flood. This attitude and outlook promote a lean culture. “What good is a breakthrough goal if there will still be another two or three generations of people sleeping on the streets before homelessness is eradicated?” Similarly. kaizen takes a long time if you have got a big goal. The lack of strong direction and focus inherent in kaizen can make the process liable to wander off course. slow. . They might reasonably ask. There would not be enough continuous stimuli to bring about change. you are unlikely to have time for the ongoing formal reflection that kaizen requires. continuous improvement may take too long. iii. DISADVANTAGES OF KAIZEN COSTING By definition. For example the nonprofit ends up improving the layout of its aid request form instead of looking at how to create greater access to funds.team. It relies on lots of small ideas to be effective if kaizen is not handled well as a process. such as ‘eradicate homelessness throughout the United Stated’. if you have crisis such as an earthquake. ideas aren’t seen as being welcomed and seriously considered. It will certainly be too long for homeless people. they are usually more than willing to contribute in any way possible. many need to see proof. energies may become misrouted. Proof: To convince people lean does indeed work. documenting activities allows us to track tangible benefits and improvements in the work areas. If the overwhelming drive is not there to keep people on track. or other disaster. By seeing immediate results from a kaizen event. For example. people will come to understand they have more control over their work areas than they think. or if ideas only from certain layers of the organization are taken up.
The lack of a demanding deadline may mean that the process runs out of steam. Kaizen is a useful tool if we have a longish time frame. Newer people may perceive no real change and thus become dispirited. Monden and Hamada (1991) describe the application of Kaizen costing in a Japanese automobile plant. In contrast. They are assumed to have superior knowledge about how to improve processes because they are closest . However. It may start to be seen as a Sisyphean task that people feel is ultimately hopeless. staff. There is the danger that kaizen becomes an excuse for inaction even for poor performance. a clear goal. far from being comfort-zone work. Indeed kaizen can see to work against transformation. and cost reductions are achieved primarily through product design. and managers with long service records are needed to provide the organizational perspective. Therefore the potential cost reductions are smaller with Kaizen costing because the products are already in the manufacturing stage of their life cycles and a significant proportion of the costs will have become locked-in. With target costing the focus is one the product. kaizen processes can be used to make focused incremental improvements in performance toward a breakthrough goal. Kaizen costing relies heavily on employee empowerment. Kaizen costing focuses on the production process and cost reduction are derived primarily through the increased efficiency of the production process. The aim of Kaizen costing is to reduce the cost of components and products by a pre-specified amount. Each plant is assigned a target cost reduction ratio and this is applied to the previous year’s actual costs to determine the target cost reduction. DIFFERENCES TARGET COSTING AND KAIZEN COSTING The major difference between target and Kaizen costing is that target costing is applied during the design stage whereas Kaizen costing is applied during the manufacturing stage of the product life cycle. This may mean that boards. Measurable improvements at any given point may be very small. so people need a long-term perspective to appreciate the significance of the change overall. It can be hard to keep people motivated if there’s not an end in sight that they can connect to. and a set of processes to gather and quantify knowledge on what works.
VE is different from control activities based on traditional standard cost accounting and it encourages the . By this process.S. VE activities for direct materials can be implemented concerning the material quality or a grade change.A. the change of a part shape. the step of corporate long-term or middle-term profit planning is included in the process of target costing. For this purpose.to the manufacturing processes and customers and are likely to have greater insights into how costs can be reduced.S. constitute the total cost management system of Japanese companies. the change of painting method. The concept of total cost management also comes from total involvement of all people in all departments throughout the company. when linked together. and its relationships with target costing in this paper. the decision as to whether the product is to be produced is made. the reduction of the number of bolts in a part. The basic idea of VE is that products and services have functions to perform and the amount of their value is measured by the ratio of these functions to their costs. a major feature of Kaizen costing is that workers are given the responsibility to improve processes and reduce costs. however. Also. it is necessary that the functions of each product part and service are clarified and that all functions are quantified. the general idea in the U.A. and that the accounting control system has become useless and unnecessary. Since the concept of Kaizen costing is rather new in the U. the common use of an alterative part. procedures. Narrowly interpreting target costing would be that it consists of two processes roughly classified as: a) The process of planning a specific product that satisfies customers‘ needs and of establishing the target cost from the target profit and targeted sales price of the new product. and b) The process of realizing the target cost by using "value engineering" (VE) and a comparison of target costs with achieved costs. The "total" cost management in this context implies cost management in all phases of product life. Broadly speaking. Target costing and Kaizen costing. Thus. We would like to demonstrate in this paper. seems to be that floor-level control activities are more useful in modern manufacturing plants as a result of the spread of the JIT (just in time) production system and TQC (total quality control). that the management accounting system is functioning very well in both target costing and Kaizen costing in Japanese automobile companies.’ At this point it would be appropriate to briefly comment about VE. we will clarify its concept. Unlike target costing it is not accompanied by a set of techniques or procedures that are automatically applied to achieve the cost reductions. For example.
they were initially aiming at reduction of purchased parts costs.proposal of creative plans designed to reduce cost standards. there may be a bias against high cost/ high profit products. Though the direct object of consideration in target costing is costs. and their VE activities were not linked to corporate i. as the ratio of direct labor costs to total manufacturing costs is about six percent in the auto companies. Target costing is not a management method for cost control in a traditional sense. We will examine the target costing process and divide its process into five steps as follows: . Target costing is more suitable in the multiproduct-small production run firm than in the fee product-large production run firm. If a company focuses only on costs. Take for example. iv. target costing has the following properties: Target costing is applied in the developing and designing stage and it is different from the standard cost control system which is applied in the production stage. By linking target costing and profit planning. the case of a company that can develop products whose sales prices greatly exceed their high costs because of their high quality. Moreover. because the managerial objects of target costing include the techniques of development and product design. however. such a bias can be prevented and it makes employees understand the fact that a company's ultimate goal is not cost reduction but higher profits. The cooperation of many departments id needed in the execution of target costing. v. ii. target profit and target costs as they are in Japan. This contrasts with standard cost accounting which overemphasizes determining and achieving cost performance standards. This means that the management of variable costs has become extremely important. Target costing must be closely connected with corporate profit palming. In the target costing process. In the case of GE. In general. the reason why target costing has become important is that in Japan the ratio of variable costs to total manufacturing costs has recently increased remarkably [up to 90 percent in the auto industry) and the ratio of direct material costs to total variable costs is about 85 percent in the auto companies as the annual reports show. many methods of management science are used. The techniques of VE itself were first developed in GE (see Miles ). iii. In addition to the reasons which we mentioned in the introduction. the management of direct material costs by target costing has become more important than that of direct labor costs. but it is one which intends to reduce costs.
development costs and prototype manufacturing costs.traceable fixed costs) and operating profit (contribution margin – allocated fixed costs) as average figures for a series of developing models are computed. 2. 3. the product planning department presents the engineering planning department with its wishes regarding the type of new product to be developed and the content of the model changes based on market research. Product design. and 5. Developing the specific new product project. The system in Target Costing a) Corporate Planning In this step. In computing operating profits. Determining the basic plan for a specific new product. b) Developing the Specific New Product Project In order to give shape to the general new product plan. based on this average figure each of these three kinds of profits is planned for several representative types of each model. Corporate planning. the long and medium term profit plans for the whole company are established and the overall target profit for each period is determined for each product. 4. This is discussed at the top management product planning meeting and the product planning proposal is prepared there. The ratio of return on sales is often used as the indicator of the profit ratio for establishing target profit. In this plan. A corporate plan is drafted by the corporate planning department. The product manager later gives shape to this plan and establishes the basic product plan.variable costs). Contribution margin (marginal income . are allocated to each model. marginal income (sales price . depreciation costs of facilities and dies.1. As part of the plan. In the three-year profit plan. new product development plans are drafted by the engineering planning department and a general new product plan is established. . The production transfer plan. model changes and model modifications are established for all cars. the time frame of new product development. Further. because this ratio is easily computed for each product.
Following that. target price figures are gathered from the domestic auto division and the foreign auto division. According to the reports of the departments. For this reason. On the other hand. the cost management department estimates the costs of the plan and investigates whether the plan can achieve the target profit. eight years. The establishment of the target cost needs to be reviewed on various dimensions regarding the size of the gap between allowable cost and estimated cost. each department implements VE activities regarding the design method in . the requirement is very severe and not immediately attainable. One major company uses a simple accounting expenses measure (including interest costs) for the decision of adding facilities. the payback period is usually no more than four years. If this cost is adopted as the target of efforts. For a minor model change the period is two years. The payback period should normally cover no more than two model lives. and to estimate costs. The method of the computation is as follows: Target sales price . the major cost factors such as design and structure are determined and target costs are established. Some auto companies use the payback period method as an aid in assessing profit-ability. "allowable cost" is computed. studies and positive application of motivational factors regarding employee behavior are needed. From these prices and target profit. The product manager requests each department to review material requirements and the manufacturing process. c) Determining the Basic Plan for a Specific New Product In this step. Only the profitable projects are adopted. Thus it is necessary to establish a ‘target cost’ that is attainable and motivates employees to make efforts to ultimately achieve the ‘allowable cost’.Target profit = Allowable cost. top management orders development based on it. the department requests modifications and eliminations. Allowable cost is the cost that top management strongly desires to attain. In the case of a specific facility used exclusively by a certain model. for example.In this stage. After the target cost is determined and if that plan is approved. the total "estimated cost" is computed. When the project does not appear profitable. the estimated cost is not the appropriate target of efforts. At the same time.
Those standard values are used as a data base for computing costs for the purpose of financial accounting and for "material requirements planning". For this reason. Soon after the target cost is set. d) Product Design The design department drafts a trial blueprint according to the target cost set for every part. For this draft. The production engineering department establishes standard values of material consumption labor hours and so on. . the engineering planning department decomposes the target cost into each cost element and functional element with the help of the cost management departments Cost elements are material costs. they are usually fixed for one year. the preparatory condition of production equipment is checked and the cost management department estimates costs according to the final blueprint." The purchasing department also starts negotiating the prices of purchased parts at this time. production begins. chassis and so on. The departments execute the VE analysis in cooperation with each other and the trial blueprint is adjusted accordingly. information from each department is needed. the classification is detailed. This classification is made to be followed up by target achievement activities in the production design stage including the purchasing department. e) The Production Transfer Plan In this step. purchased parts costs. depreciation costs and so on. Functional elements are engine transmission system. the final blueprint is established. After repeating this process several times. The design department also actually makes a trial car according to the blueprint and the cost management department estimates the costs of the car. Important points are clarified by these detailed classifications. The design department also decomposes the target cost into each part. The performance evaluation of target costing is then implemented after new cars have been produced for three months. as abnormal values usually arise during the first three months. In addition. One major firm calls this value the "basic cost. direct labor costs.cooperation with each other in order to identify cost effective products that will fulfill customers’ demands. Therefore. If there is a gap between the target cost and the estimated cost. Those values are presented to the factory.
The inadequacy of standard costs for Kaizen costing purposes is obvious from the viewpoint of "Kaizen" concepts. If the target cost is not achieved. In essence. investigations are made to clarify where the responsibility lies and where the gap arises. However. Roughly classified. Further. many technical methods of engineering are needed. These investigations also evaluate the effectiveness of the target costing activities. Kaizen costing activities are of two kinds. Also the standard costs are changed only once a year. As target costing deals with the development and design of new products. but because it is considered to be very important.The performance evaluation of target costing is implemented to examine the degree to which the target cost is achieved. the concept of Kaizen costing covers broader meanings than the traditional cost control concept that refers to meeting cost performance standards and to investigating and responding when those standards are not met. When a Japanese accountant hears the words "Kaizen costing. This means that the companies do not implement the traditional cost variance analysis based upon the gap between the standard cost and the actual cost for each period. target costs and estimated costs." In the former case. . The reason why Japanese automobile companies implement Kaizen costing outside the standard cost accounting system is not because cost reduction in the production stage is taken less seriously. Kaizen costing in Japanese automobile companies has not been implemented according to standard costing. a special project team called a "cost Kaizen committee" is organized and the team implements VE activities. One consists of activities implemented to kaizen actual performance when the difference between actual cost and target cost is large after new products have been in production for three months. The other kind consists of activities implemented continually every period to reduce any difference between target and estimated profit and thus to achieve "allowable cost. The following distinction between VE and "value analysis" (VA) can be made. Kaizen costing activities include cost reduction activities which require changes in the way the company manufactures existing products. the actual cost per car for the latest period is the Kaizen cost budget which must be reduced in each successive period in order to meet the target profit. However." He expects a relation to the cost control system based on standard cost accounting. the management accounting system is important in effectively determining target profits. Kaizen costing is implemented outside the standard cost system as part of the overall budget control system. Standard costing is limited by its financial accounting purpose in Japanese automobile companies and therefore it has many unsuitable features for cost reduction in the manufacturing phase.
but attempts to reduce costs of parts by promoting VE proposals of vendors as well as by negotiating prices with vendors. in the factory the most important subject is the use of VE activities to reduce consumption. i. However. the actual result of the plan 128 percent attainment of goal at the end of six months. and direct labor costs are managed by setting the amount of Kaizen cost per unit of each product type. Through a concerned effect by all departments based on the decisions of the cost Kaizen committee. energy. As substructures to this committee. As for direct labor costs. The second category of Kaizen costing means reaching cost reduction targets established for every department as a result of the short term profit plan. Expectation that the above goal would be achieved within six months. VA is the cost reduction activity that involves design changes of existing products. organization of the following three subcommittees. v. For example. Since the purchasing department supervises the purchase prices of parts from outside suppliers. the purchasing department is not allocated an amount of Kaizen cost target for its own department expenses. The establishment of a cost Kaizen committee implies that the car model's Kaizen has a top priority. It is much easier for factory workers to understand the . the distinction is not made in this case and the ten is used. Different methods are adopted because of the difference between variable and fixed costs. A similar approach is applied to material costs improvement.000 yen (about $75) per automobile. Establishment of a cost reduction goal of 10. Establishment of a cost Kaizen committee chaired by the plant manager. a) b) c) Production and assembly Design and engineering Purchasing iv. the plant manager made the following proposals to the top management meeting concerning cost reduction. Fixed costs are subjected to "management by objectives" based on the overall amount of Kaizen cost instead of the amount of Kaizen cost per car. At that time. monetary control as well as physical control in terms of labor hours is implemented by using the cost decrease amount as the Kaizen cost target. the profitability of one automobile model showed a marked decrease because of cost increases due to oil. the variable costs such as direct materials.VE is the cost reduction activity that involves basic functional changes in the new product development stage. ii. Usually. Promotion of a company-wide cost reduction program for the specific model. coating. Just after the oil shock in 1973. iii. The following is a real life example of activities of the cost Kaizen committee.
Kaizen targets when the amount of cost reduction targets for both fixed and variable costs are presented individually rather than presenting the total cost target. .
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